Bankruptcy Case Study (Chapter 13)

This is the bankruptcy case study for Karen who resides in Tinley Park, Illinois. Karen is widowed and is currently the owner of a single-family home with an approximate value of $80,000. The home is paid in full and it is held in trust and there is a co-owner as well. The only outstanding obligation on the real estate is the monthly condo association fee which is currently up-to-date. With the knowledge that the real estate has too much equity for the debtor to file a Chapter 7 bankruptcy, we will look at this case study in light of Chapter 13 bankruptcy laws. In terms of other major personal property, the debtor owns a 1997 Cadillac which is financed by Springleaf Financial with an approximate value of $12,000. The debtor only owes $2000 on the vehicle, the monthly payment is $94 per month and the debtor is up to date. So right off the bat, we have a house with equity and we have a vehicle with equity.

In terms of personal property and assets, the debtor has a checking account at Republic Bank with a very small balance. She has household goods which she values at $1000, apparel which she values at $500, a firearm which she values at $100, a pension valued at $27,000 and no other personal property whatsoever. She is widowed and she has no dependent children. She is retired. Her income consists of retirement income and pension income totaling $2400 per month. In examining her monthly expenses, she has no real estate expense other than the condo association which is $208 per month. She does have electric, gas, food, cable TV, cellular phone, medical expenses, health insurance, auto insurance, and other miscellaneous expenses totaling approximately $1000 per month. It is clear at this point that the debtor has a very large surplus of nearly $1400 per month.

In terms of the statement of financial affairs, the debtor has earned approximately $25,000-$30,000 per year for the last several years based on retirement income and investments. She has closed two separate checking accounts in the last two years in which she was running a negative balance. She also has a safe deposit box which has nothing in there but papers. The big issue for Karen is over $380,000 worth of federal tax debt. This tax debt is related to 401(k) liquidation fees and penalties that occurred over the past 10 years. Some of this tax debt would be paid in full through a chapter 13 while a portion of it could be paid less than in full in certain circumstances. In addition to the tax debt, the debtor has approximately $45,000 in miscellaneous credit card debt.

My recommendation for Karen would be to file a chapter 13 bankruptcy. This will allow her to keep her house and her vehicle and provide a partial repayment plan for some of her IRS debt and credit card debt. Karen needs to decide whether or not she wants to take a proactive approach to getting out of debt or whether or not she wants to wait for creditors to pursue her, engage in post-judgment collection efforts and eventually put liens against her real estate. The IRS can also put a lien against the real estate should she not work out either a chapter 13 or an offer in compromise. Thus, the case is somewhat complex and Karen has several options on which way to go. I personally would recommend a chapter 13 bankruptcy. She has the income to support a plan and comfortably pay for the debt over the next 60 months.

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